What happened
Shares of entertainment company ViacomCBS (VIAC +0.00%), which announced Tuesday evening that it's changing its name to Paramount Global, reported earnings last night. Today, shares of Paramount (the name change has already gone into effect) are down 21.7% as of 11:30 a.m. ET.
Don't be too confused about the name change and the unchanged ticker, by the way. Paramount says its tickers will be changing as well, with its Class A shares to be designated "PARAA," its preferred stock "PARAP," and its Class B shares simply "PARA," effective Feb. 17.
Image source: Getty Images.
So what
Don't think the name change is the reason for the stock selling off. Today's decline is all about the earnings.
Last night, Paramount reported pro forma earnings of just $0.26 per share where Wall Street had been hoping to see $0.43 -- a sizable miss. This was despite Paramount's sales coming in well ahead of the expected $7.5 billion, growing 16% to $8 billion, and even earnings arguably being better than they looked.
As management explained, Paramount enjoyed growth in revenue "across all revenue types," from streaming subscriptions (up 9.4 million to pass 56 million, generating $1.3 billion in revenue) to IP licensing (up 45% to $1.9 billion) to advertising. Even though that grew only 1% in Q4, at $2.6 billion it's still Paramount's biggest business.
While management noted that its non-GAAP (adjusted) earnings missed expectations and were down 75% year over year at $0.26 in the fourth quarter, when calculated according to generally accepted accounting principles (GAAP), Paramount's earnings actually grew more than 140% to $3.05 per share.
For the year, revenue was up 13% at $25.3 billion, and GAAP earnings grew 79% to $6.69 per share.
Now what
Now, not all the news was good.
Notably, free cash flow at Paramount suffered a steep decline in 2021, falling by more than two-thirds from just under $2 billion to only $699 million. Given that, I'm not certain investors should place too much faith in the fact that Paramount said it "earned" $4.6 billion in profit last year -- there's just too big a "gap" between the GAAP number and the actual cash being generated by the business.
While the size of today's sell-off is surprising, on balance I do think investors are right to be cautious.
